The Basics of Credit Card Balance Transfers Explained

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Balance transfers can be a great way to pay off high interest rate debt, especially if you qualify for a promotional interest rate. But, before you apply for a balance transfer credit card, make sure you understand how balance transfers work.

Why Transfer a Credit Card Balance?

A credit card balance transfer is a type of credit card transaction that allows you to move one credit card balance to another credit card, usually with a credit card from another credit card issuer. When you apply for a balance transfer credit card, you can enter the details of the balance you want to transfer including the account number and transfer amount.

If your application is approved and your credit limit is high enough, your new credit card issuer will initiate the process of transferring the balance to your credit card. You may also be able to transfer a balance by phone or online after your credit card account has already been established.

One of the best reasons to transfer balances is to take advantage of a lower interest rate. The lower rate will allow you to save money on a high interest rate balance. It's not a good idea, however, to transfer credit card balances just to avoid paying your credit card bill. That can get expensive and lead to credit card debt, especially if you make it a habit.

Important Features of a Credit Card Balance Transfer

When you're looking for a credit card suitable for transferring a balance, make sure the card allows balance transfers. Read through the terms of the credit card, if it lists an APR and fee for balance transfers, then you can use it to transfer a balance. If those costs aren't listed, it's safe to assume you can't transfer balances to that credit card. You can call the card's customer service to confirm if you're especially interested in that particular credit card.

There are two APRs to consider with balance transfer credit cards: the promotional introductory rate and the regular rate that will apply after the introductory period has ended. Compare the post-promotional interest rate to the interest rate on your current credit card. Be sure you know the balance transfer fee. This fee is added automatically when you transfer the balance. The lower the fee the better.

Look for Savings

Not only does the balance transfer credit card play into whether you do a balance transfer, you also need to know you’ll actually save money by doing the balance transfer. Using a balance transfer calculator can help you figure this out easily. Make sure you consider the balance transfer fee and an annual fee to get the full cost of transferring the balance.You can maximize your balance transfer savings by repaying the entire transfer during the promotional period.

Credit Card Balance Transfers Can Affect Your Credit Score

Transferring credit card balances could have an impact on your credit score if the new balance is more than 30% of your credit limit. That doesn't mean you shouldn't move the balance, especially if you'll save money in the long run. Plus, your credit score can rebound as you pay down the balance.

Be Sure the Balance Transfer is Successful

A balance transfer isn't as quick as making a credit card purchase. It could take a few days to several weeks for the transfer to process. Continue making regular monthly payments on your old credit card until your online account statement shows a zero balance.

Don't ignore your billing statements under the assumption that your balance has been transferred. If there is a mistake with the balance transfer and you ignore billing statements from your old credit card, you could miss a payment and end up with a late fee and late payment entries on your credit report.

Paying Off a Balance Transfer

You'll save the most money on interest charges by paying the full balance during the promotional period. Divide the total balance by the number of months in the promotional period to figure out the monthly payment you need to make to pay off the balance and completely avoid interest.

It could take you longer to pay off a balance transfer if your credit card has another type of balance, like a purchases balance if the balance transfer has a higher interest rate. Credit card issuers currently apply any above-minimum payment to the balance with the lowest interest rate until that balance has been completely repaid. Until the lower rate balance has been paid off, you typically only pay interest on the balance transfer.